Yes, but there was an economic reason for this. According to Henri Claude in his De la crise économique à la guerre mondiale ("From economic crisis to world war"), written during WW2 but only published in 1945, the concentration of gold reserves in the hands of the US, Britain and France was one of the economic causes of that war.

Claude quoted figures showing that in 1937 eight countries (US, Britain, France, Netherlands, Switzerland, Belgium, Argentina, Sweden) held 92% of the world stock of good, with 80% held by the first three. The US, Britain and France had accumulated 16,424,000 kilogrammes of gold while the gold reserves of Germany, Italy and Japan amounted only to 736,000 kilogrammes between them. These countries were therefore cut out of world markets and so had no choice, within the context of world capitalism, but to get access to markets by a policy of dictatorship, autarchy and war.

For those following this discussion who can read French as well as German, a summary of the book's argument can be found here.

Which shows not only how and why capitalism leads to war from time to time but the irrationality from a human point of view of the whole money system. But, Noa, you are not seriously advocating a return to the gold standard, are you?

So your 'explanation' is that when there is a gold standard money gets regulated by its cost of production, but when there is no gold standard it's not regulated by cost of production. Pre-1971 you're a Marxist (aka Kautskyian), post-1971 you're a Hilferdingian, is that it.

It could be somewhat different to that; as paper money backed by gold (or not) was in practice displacing gold money over the previous 100 years or so , as even just a notion.

However if it was still deemed necessary to fix the exchange value of paper money to some reference point or other.

Then the exchange value of the money unit ie a $ would have to be fixed as equal to something else, or another commodity.

It could be a loaf of bread, a bushel of corn or even a double Mac with French fries for that matter.

In the 20th century using gold as the reference commodity was a purely a traditional hangover from the past.

What happens then, in custom and practice, is that the money supply, and quantity of money introduced and withdrawn from circulation, would have to be regulated to keep the exchange rate of money fixed to the nominal reference commodity eg gold or even a hamburger.

And then perhaps the ‘Hiferdingist’ money supply theory is wagging the Kautskyist gold money theory

You could understand why it would be a pain in the arse regulating the money supply to keep the dollar pegged to a certain amount of gold or a hamburger; and other currencies pegging or regulating their money supply to peg it to the dollar etc.

After all the interest and faith in a precious metal as money and as at least a store of value had become a vague historical memory, although the ‘Chinese’ and Asian ‘Indians’, as cultural goldbugs, still haven’t forgotten that idea apparently.

So I don’t think it is an absolutist pre 1971 and post 1971 issue but more of a gradual dialectical development of one reality into another.

Perhaps in 1971 the spurious charade of money ‘being’ gold and needing to be determined by gold’s ‘cost of production’ is finally cast off as a concept and reality.

It's not about the sudden reversal in 1971 dave. The debate with Hilferding in 1912 took place at the height of the gold standard. His claim that the value of money is independent of gold (i.e. enters circulation without value) applies also to the period of a gold standard (he in fact didn't believe a stable system without gold standard was possible). You can't be a "Hilferdingian" only post 1971 (or post-1914). The claim that money enters circulation without value applies also to the time when there was a gold standard.

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But, Noa, you are not seriously advocating a return to the gold standard, are you?

Of course I was joking and I hope Angelus was as well. Or does Ron Paul defend the labour theory of value?

Bellofiore in 'Marx after Marx or, Do we need a credit theory of exploitation?' explains well the issue (he holds a similar position to Heinrich, I think they even held a conference together recently). Here's an extract from the section 'The value of money and the value of labour-power':

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Gold as the "product of labour" which plays the role of the universal equivalent "counts as the value-form for other commodities", and hence it "has immediately social form". Thus, the definite, useful, concrete labour producing gold is social labour without the mediation of exchange. The inner opposition between use-value and value within the commodity develops into an external opposition: the equivalent-commodity counts as value-form, the shape of exchange value, while the other commodity counts as the shape of use value. As a consequence, the concrete labour producing the money-commodity is immediately not private but social labour: it is the form of actualisation of abstract labour. Gold asmoney is a commodity in the sense of being produced by labour. It is not a commodity in the sense of "having" value (though Marx often uses this expression). Value is private labour validated in exchange, whereas money does not need to be validated almost by definition: rather, money as the material symbol of abstract labour "represents" value in its own "bodily or natural" form.
Major consequences follow from this view of value and money. The magnitude of (potential) value within a commodity can be traced back to "embodied" labour merely as a share of the labour producing the money-commodity. On the market, the monetary expression of value tells us how many units of money, and hence of directly social labour, a unit of (private, indirectly social) labour time spent in producing the commodities is able to buy. It is the sum of prices divided by the labour time pumped out in production. In the previous section, since relative prices were equal to exchange-values, the monetary expression of value was unity. The same, of course, is true for the whole of vol. I. The value of money, then, is the amount of (directly social) labour embodied in the production of the money-commodity. Because of the assumption that private, indirectly social labours are validated in exchange running throughout most of Capital the value of money is just the reciprocal of the monetary expression of value. Thus, a unit of money (more precisely, the amount of abstract labour producing a unit of money) represents a unit of labour embodiedin the commodity. This allows Marx to translate labour embodied in commodities into observable money magnitudes in the market (as the quotes in sect. 2 make clear).
Marx's commodity theory of money is relevant also to fully understand his notion of value of labour-power in vol. I. Marx is well aware that the wage is paid in money by the capitalist to the worker before entering production, and that the latter has to wait after the end of production until he will spend the wage on the commodity market to eventually know the real wage. The labour embodied in the real consumption basket of the worker is, therefore, unidentified before the valorization process. Marx, however, claims the opposite: the owner of money, he stresses, has already paid the value of labour-power on the labour market. Marx is quite right in taking this position in its own terms. Variable capital is money-capital which may be thought as gold, that is to an amount of (directly social) labour embodied which is given before the valorisation process. If the real wage is at the "subsistence" level - a level which is determined by "historical and moral elements", hence by class conflict - the labour embodied in the gold buying labour-power at the beginning corresponds to a given amount of the abstract labour embodied in the wage goods bought by the worker. There is a bijective mapping between the money equivalent of labour-power and the value of labour-power, both being reducible to embodied labours.
To summarise, Marx's counterfactual comparison appears to have this structure: (i) at the beginning of the circuit the " would-be" capitalist advances the value of labour-power in money, which corresponds to the value of labour-power because the capitalist class will in fact supply on the market at the end of the circuit the subsistence wages the working class deserves and expects; (ii) if labourers' work last until their living labour reaches the necessary labour embodied in the gold advanced, the owner of money would not become a capitalist; exchange values would be the ruling prices; (iii) the " would-be" capitalist is actually a smart capitalist: he compelled workers to a living labour exceeding the necessary labour embodied in the gold advanced, hence to a surplus abstract labour; (iv) when the capitalist goes to the commodity market, he gets back a larger sum of money, hence a larger amount of labour embodied in gold as the general equivalent: the surplus value is nothing other than the "surplus labour" contained in the extra money, and corresponds to a certain amount of actualised abstract labour coming from production; (v) the real wage gained by the worker after production is equal to the value which the " special" commodity labour-power deserves in this mode of production because it is the labour time needed to the production and reproduction of this specific article: a value which, according to Marx, in a given country and in a given period is a datum. Beware of the causality chain: the value of money is given at the beginning of the circuit; it is because the value of money is already given that variable capital may be expressed both in labour and in money before production, and that the living labour of the wage workers may be expressed both in labour and in money before the final exchange on the commodity market.
Two objections may be raised against this train of thought. Let's start from the end. The correspondance of the labour embodied in the money-commodity with the labour embodied in the consumption bundle of the wage worker we mapped in the previous argument is of course valid only within "equal exchange" - namely, with relative prices proportional to exchange-values, or with money prices at simple prices. When production prices diverging from simple prices emerge, the labour bought on the commodity market by the money wage paid in gold and the labour embodied in the production of wage goods will not, in general, match anymore. Here we come up against a consequence of the first contradiction we recalled in sect. 1: I shall return on it in the next section. The other charge goes to the heart of the matter: can money be coherently depicted as a product of labour, as a " special" commodity, in a monetary production economy like Marx's capitalism?
My answer is negative. In a monetary economy based on wage labour, the production both of consumption goods and of capital goods must be financed with money. The sequence is opened by the exchange between capital and labour on the labour market: firms buy the labour-power they need in view of the output they plan to sell after production. The dealing between firms and workers is a standard labor contract in money, and the general means of payment to firms to fulfill their obligaton is provided by the banking system. Production is the intermediate step and it takes time: for the sake of simplicity, I assume that production begins at the same moment and lasts one period for each firm. After production, at the closing of the circuit, the commodity market is opened. The total or part of the consumption goods are sold to the workers against their money wage, whereas the rest of the output remains inside the firm sector either as capital goods for productive use or consumption goods for personal use.
Thus, in a closed economy, initial finance from banks is necessary to firms to acquire labour-power and intermediate goods - the expenditure for intermediate goods disappears in the aggregate for firms as a whole, and the initial finance needed by the capitalist class reduce to the wage bill. If money would be the outcome of a production process - the "gold producer" - where should the money financing the production of the money-commodity come from? This question - along with the other related one: i.e. where should the extra-money paying for surplus value come from? - was posed by Rosa Luxemburg, with her good theoretical insight. She however lost her way in the fog of the gold producer on the former question, and gave only a partial and incorrect answer to the latter question referring to the money coming into the commodity market from "external" sources. As Schumpeter clearly saw, and Wicksell before him, the problem can be satisfactorily answered only if finance to production means bank loans created ad hoc, with money interpreted as a pure symbol.
The second contradiction recalled in sect. 1 reappears once again. If money has no labour content, then the Marxian notion of exploitation gets in trouble. It is indeed impossible to establish the labour counterpart of variable capital as an advance of money before production, and to calculate before final exchange the amount of the surplus labour embodied in the extra money the firm is struggling for (the same notion of this extra money becomes indeed very dubious, for reasons I shall not go into out now ). From production we only know living labour as indirect social labour: to have the division of the social working day we have to wait until( gross) profits and wages are spent on the commodity market. In an inconvertible paper money system, the value of money and the value of labour-power will be fixed only at the end of the monetary circuit. Marx's chain of causality collapses.

But, Noa, you are not seriously advocating a return to the gold standard, are you?

Of course I was joking and I hope Angelus was as well. Or does Ron Paul defend the labour theory of value?

That's a relief. Not that defending the labour theory of value necessarily means that that person will not also defend a gold-backed currency, as the examples of Lenin and Trotsky and in fact of Kautsky and Hilferding show. Marx himself of course was not concerned with policy recommendations as to how capitalism should be run, but with criticising the ideology of economics (called "political economy" in this day) and with replacing capitalism with a moneyless communist society.

I still say, though, that, although it is not possible to understand the nature of modern money without taking into account its origin as a token for gold when gold was the money-commodity, it is stretching things a bit far to say that gold is still the money-commodity.

I've been able to track down where Anwar Shaikh talks about translating dollar prices into gold prices (by taking a basket of goods priced in dollars and dividing the total by the price of gold). It's from the 30th minute on in this video here:

Incidentally, I first found this on a site set up to advise people to invest in gold or shares of gold-mining companies (go here and type "Anwar Shaikh economist" into the search box). I don't suppose at all that this was Shaikh's intention or expectation but it shows how the capitalists can co-opt anything.

As to this Belliofiore I can't understand what he's talking about. I don't suppose others can either. I'm not sure he does himself. He seems to think that in Marx's day workers were paid in gold sovereigns when their weekly wage was far less than a sovereign. It looks like another case of the Emperor's New Clothes.

it is stretching things a bit far to say that gold is still the money-commodity.

In a recent lecture on money Ticktin (like others from the Critique journal) said that due to the decline of capitalism the law of value gets distorted and hence also money gets distorted (this idea neatly fits with the 1914 date generally given by communists as the start of decadence). Today's money is nationalised he says, which conflicts with the natural capitalist logic. It's not really money (does it still function as measure of value?).
But if you don't take the notion of decline serious, there's another option (perhaps not necessarily mutually exclusive), namely: gold still determines the value of money today, just like it did when there was a gold standard. Again, this is a theoretical issue which president Nixon has no power over. I don't know any self-proclaimed Marxist (including Heinrich) who pretends that a reference to the end of Bretton Woods settles the argument. I quoted that passage from Bellofiore to show how obscure the problem is. Furthermore, others who reject Marx's theory of money, take for instance Chris Arthur, often have different reasons for doing so. In the case of Bellofiore it seems the issue is linked with the debate on the TSSI. You don't understand his argument against money commodity, which is fine, but you don't even bother to give your own explanation why gold isn't money today (instead dealing with non-sequiturs about the political positions of Kautsky or Trotsky), as if doesn't require an argument.

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I first found this on a site set up to advise people to invest in gold or shares of gold-mining companies (go here and type "Anwar Shaikh economist" into the search box). I don't suppose at all that this was Shaikh's intention or expectation but it shows how the capitalists can co-opt anything.

but you don't even bother to give your own explanation why gold isn't money today

Uh, because it doesn't fulfill the functions of money as enumerated by Marx?

It's not used as a means of payment or means of circulation in most countries. It somewhat functions as a store of value, but it doesn't fulfill that function exclusively, or even primarily. Finally, money as measure of value. You can use gold for this, but it's an analytical exercise more than anything else. As I pointed out, a McDonalds hamburger would be just as serviceable.

I don't get the obsession by dogmatic Marxists to demonstrate that gold still functions as money. Marx's analysis of capitalism is better than pretty much any other analysis. If empirical reality doesn't happen to accord with Marx on this one point, who cares about engaging in philosophical pin-dancing to try to make it fit?

Yes, the mere possibility of calculating an index of commodities in terms of ounces of gold (or grams of hamburger) doesn't prove that gold determines the value of money today. The calculation does give interesting results (in contrast to hamburgers I imagine).

Hamburgers do function as value of measure according to Hilferding's position, in fact all commodities do (including gold). The total value of the mass of commodities determines the value of money ('socially necessary circulation value' he called it). By contrast, according to Marx, hamburgers do not function as measure of value.

In my view, Marx's theory of value is in serious trouble without the money-commodity. Dieter Wolf demonstrates this quite rigorously, in my view, in an article published in Geldware, Geld und Währung some years ago. Now, I think there are two ways around this:

1. Arguing that Marx was wrong to presuppose the money-commodity as an essential feature of capitalism (Heinrich's position) and providing an alternative theoretical account of contemporary money and its functions within a broader Marxian framework. I have yet to find a decent treatment of the second task. Many people seem to have a lot to say about the role of the money commodity in the first three chapters of Vol1 and how these chapters are conceivable without the money-commodity, but not many seem to be able to provide a reasonable theory of money based on empirical evidence. One of the exceptions could be a book pointed out by Ocelot on another thread, Capitalism with Derivatives, which argues for the decisive role of derivatives in offsetting the risks brought about by the dissolution of the Bretton-Woods arrangements (I haven't read it closely yet).

2. Taking the position that the money-commodity cannot be simply abolished by decree, and that there still is a money-commodity in the present world economy. (BTW, the fact that gold does not perform all of the tasks enumerated in Ch3 of Vol1 is not really an argument – that was already true in Marx's time. The real questions are: What is money? Is it a form of value? If so, what determines the value of money? Marx's answers are obvious, but if there's no money-commodity, they stop making sense.). This is something that various people like Krüger and apparently Shaikh and others have attempted to do this. Krüger argues for the role of the price of gold in influencing central bank decisions and bases this on empirical evidence from Germany.

You've used this term a couple of times, but what do you mean by it? In fact, what do you mean by money? I'm assuming you mean the circulating medium which allows people to buy and sell, ie exchange for, commodities, ie the currency.

I think we can all agree that at present that gold or silver are not the currency as they were in 19th century Britain, though even then not all the currency was gold or silver coins but also paper and coins of other metals which were tokens for gold and which were convertible on demand into a fixed amount of it.

Under these conditions, what was "the value of money"? Presumably, the value of the money commodity, ie the amount of socially necessary labour embodied in it from start to finish. In 19th Britain in effect the value of gold (in some other countries it would have been the value of silver). But what about the tokens? Presumably, it wouldn't be their socially necessary labour cost of production, but in buying and selling transactions would be that of gold. Maybe it would be better to talk about their "purchasing power"?

What about a situation in which the government issued an inconvertible paper currency? This wasn't just a question of theory because this did happen in Marx's day, in Prussia and Austria for instance. Naturally Marx discussed this. His analysis was that such an inconvertible paper currency would only retain its face-value if the amount of it issued was the same as the amount of gold (or silver in the case of Prussia and Austria) that would otherwise circulate. If more than this was issued then the paper currency would depreciate, ie despite its face-value would represent less gold or silver (but still some). You could say that its "purchasing pwer" would fall.

Marx was assuming a situation where the inconvertible paper money circulated alongside a commodity money and its tokens. He didn't live to see the situation that came into being in Britain during WWI and is now the general situation in capitalist countries where the whole currency consists of inconvertible paper money (and metal tokens). This seems to have caused a controversy among those in the Marxist tradition, but I don't see why it can't be explained in terms of Marx's general analysis and even less why it invalidates that analysis.

This analysis would be along the lines of saying that the inconvertible paper currency would only keep its purchasing power if only enough were issued as required by the economy to buy things, settle debts, pay taxes, etc. If more than this is issued then the general price level would rise, ie there would be inflation and the currency would have less purchasing power. What's non-Marxist about that?

In theory, you probably could translate its purchasing power into an amount of gold (given the non-stop inflation that has gone on in all countries, this would be a shrinking amount). That would have been easier before 1971 than after but what would be the point?

The fact that by excessive issuance of paper money or by changing factors of conjuncture, the value of paper money falls independently from gold, that, consequently, there exists an immediate interaction between the value of the mass of commodities and the height of the value of paper money, - in no way refutes the delineated viewpoint.

You write that inconvertible paper money caused a controversy among those in the Marxist tradition. People cause controversies. It was caused by Hilferding in 1912. He believed that the the Austrian example couldn't "be explained in terms of Marx's general analysis" and "invalidates that analysis". You don't seem to agree with him, but why are you taking his side then?

I think the term ‘value of money’, particularly in this context is technically incorrect, as ALB draws out.

The accurate term would be the ‘exchange value of money’, and especially now as it is obvious that money doesn’t have to be commodity as in the case of paper money or have intrinsic value or embodied labour etc etc.

There is no problem in Marxist theory as regards precedents when it comes to stuff having an exchange value not equal to its value.

In fact even most commodities don’t ; unless they so happen to use the average organic composition of capital in their production.

Also stuff can have an exchange value without having any labour embodied in it ie a piece of virgin desert with some oil under it.

And fine art by dead painters etc.

Actually the list of times and places were inconvertible paper money had existed was quite extensive.

There were ‘socialist’ bods around even before Karl that that thought the route of all evil was metallic money eg Ricardian ‘socialists’ and John Gray in particular and I think Proudhonists; I am happy to be corrected on Proudhon.

So I think he was against the idea as nonsense to start off with and tended to just hand-wave away the idea as just silly.

I also think that the suggestion that the gold standard persisted under the $ until 1971 is also a bit disingenuous.

I seem to remember that it was illegal for US citizens to own gold ‘bullion’ from around 1933 and any gold above a nominal amount in jewellery.

It only became legal in the US in the early 1970’s (1974?).

Even when money was legally convertible in other countries you could still buy it if you wanted to.

There can appear to be paradoxes in the Marxist model eg fine art and virgin land having exchange value without having embodied or intrinsic value.

It is up to us to explain the paradox’s within the terms of the Marxist model and establish the dependency of all exchange value on and in terms of the unifying theory of economics ie the labour theory of value.

Friedman and the Von Mises, Austrian and Chicago schools of economics, if you like, shamelessly claim the quantity of money theory as their own.

However this kind of argument and debate went back much further than that and Marxists ie Kautsky and Hilferding were bickering about it in 1910-12 in precisely the same terms.

Hilferding with his own quantity of money theory, from what I can gather, was in intimate contact with the Austrian capitalist school and proto- Friedmanist.

And it looks as if the Austrian school robbed the idea from the ‘Marxists’.

There was nothing original with Friedman it was all there in the Kautsky-Hilferding debate.

I read Hilferding for the first time only a few months ago and still have only skimmed through his stuff really; he is no slouch when it comes to understanding Karl’s theory in my opinion.

Unlike Lenin and Trotsky who really didn’t have a clue, and that is not just a throw away remark I mean it.

It was caused by Hilferding in 1912. He believed that the the Austrian example couldn't "be explained in terms of Marx's general analysis" and "invalidates that analysis". You don't seem to agree with him, but why are you taking his side then?

I hadn't realised I was taking his side so I've re-read chapter 2 of his Finance Capital (1910) and read Kautsky's criticism of it. Fascinating stuff on the problems caused by bimetallism in the old Austro-Hungarian Empire,

Since Hilferding says explicitly that "a system of pure paper currency" (where the only currency would be an inconvertible paper currency) was "impossible" or at least could not survive "for any extended period of time" he was assuming a situation in which an inconvertible paper currency circulated alongside gold or silver. Kautsky was undoubtedly right to argue that in this situation there was still a link between it and the money-commodity.

In fact Marx himself explicitly said so in the opening chapter on Money of the Grundrisse (which Hilferding won't have known about, but which Kautsky may have) when he discussed the inconvertible paper currency issued by Prussia.

The situation which Marx never had to consider and which Hilferding and Kautsky considered impossible has now come about. We now have "a system of pure paper currency" in which neither gold nor silver are coined and circulate as currency, not even for international trade.

But this is not something that Marx's analysis can't cope with. All that's needed is to extend his analysis of what happens to an inconvertible currency circulating alongside a money-commodity currency if too much of it is issued (it depreciates). The same happens, even more obviously, when the only currency is an inconvertible paper currency: if too much of it is issued compared with what the economy needs for its transactions, the workings of the economy will depreciate it, resulting in a rise in the general price level (inflation). This in fact is the only explanation compatible with the Labour Theory of Value for the continual rise in the general price level in all countries. (It's certainly not been caused by a continual fall in the value of gold, which is the only way it can be caused when gold is the circulating money-commodity).

If you think today's paper currencies represent so many ounces or grammes of gold please tell us how much gold does a dollar or a pound represents today. And please also explain inflation.

In my view, Marx's theory of value is in serious trouble without the money-commodity.

I think you're quite wrong here. Gold is only money in that it is a token represents a certain amount of value. Fiat currency, i.e non-commodity money, still does the same thing, it is a token representation of value.

Marx talks about these things in chapter 3 of Capital vol 1.

You're posing solutions to none problems.

edit: hadn't read the whole thread, notice this has been answered in more detail above.

Since Hilferding says explicitly that "a system of pure paper currency" (where the only currency would be an inconvertible paper currency) was "impossible" or at least could not survive "for any extended period of time" he was assuming a situation in which an inconvertible paper currency circulated alongside gold or silver. Kautsky was undoubtedly right to argue that in this situation there was still a link between it and the money-commodity.

It's in the footnote: "The value of paper money must be deducible without reference to metallic money." Kautsky picked up on this, then Hilferding wrote an article (it's in German on MIA) where he defends the claim that money enters circulation without value even under a gold standard. Again, one can't be Kautskyian at one moment, and Hilferdingian at the next.

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tell us how much gold does a dollar or a pound represents today.

I don't see the point, but if you want to know, a dollar is worth 1/1720 ounce of gold.

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And please also explain inflation.

supply and demand are not proof for the quantity theory of money

To be honest, I'm a bit surprised to see the SPGB here throw Marx's theory of money overboard like it's nothing. If it's all details then you might just as well stick to Marx.

Gold is only money in that it is a token represents a certain amount of value.

Marx explicitly argues against such a nominalist view of money:

Marx in Ch2 of Vol1 wrote:

We have seen that the money-form is but the reflex, thrown upon one single commodity, of the value relations between all the rest. That money is a commodity is therefore a new discovery only for those who, when they analyse it, start from its fully developed shape. The act of exchange gives to the commodity converted into money, not its value, but its specific value-form. By confounding these two distinct things some writers have been led to hold that the value of gold and silver is imaginary. [...]

It has already been remarked above that the equivalent form of a commodity does not imply the determination of the magnitude of its value.
Therefore, although we may be aware that gold is money, and consequently directly exchangeable for all other commodities, yet that fact by no means tells how much 10 lbs., for instance, of gold is worth. Money, like every other commodity, cannot express the magnitude of its value except relatively in other commodities. This value is determined by the labour-time required for its production, and is expressed by the quantity of any other commodity that costs the same amount of labour-time. [...] When it steps into circulation as money, its value is already given.

And in Ch3:

Marx in Ch3 of Vol1 wrote:

It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realised human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values, i.e., into money.

Hence, for Marx, money is a specific commodity and as such has value determined by socially necessary labor time. This does not preclude the possibility of replacing the money-commodity, in regard to certain functions of money, with symbols or tokens. IIRC, Marx considers this possibility in the functions of currency ("medium of circulation") and means of payment. But as a measure of values, as well as universal money (according to Marx), the money-commodity cannot be replaced.

darren p wrote:

Fiat currency, i.e non-commodity money, still does the same thing, it is a token representation of value.

OK. But the question is, then, what quantity of value does one token represent and how this quantity is determined (as Marx put it above: "Therefore, although we may be aware that gold [or "fiat money"] is money, and consequently directly exchangeable for all other commodities, yet that fact by no means tells how much 10 lbs. [or 1 token], for instance, of gold [or "fiat money"] is worth.") This is the question about the nature of measure of values. For Marx, the issue was clear: if the measure of values is itself a commodity and hence has value, then the quantity of value expressed by 1 g of gold is determined by the SNLT to produce it. I'm curious how this can be solved for "fiat money" without abandoning the categories Marx used to analyze money.

In other words, if "fiat money" is a mere representation, symbol, token of value, then that's fine. But it runs contrary to Marx's views of money, which are based on a thorough rejection of the idea that the value of money is imaginary. Hence my assertion that without the money-commodity Marx's theory is in trouble.

It's in the footnote: "The value of paper money must be deducible without reference to metallic money." Kautsky picked up on this, then Hilferding wrote an article (it's in German on MIA) where he defends the claim that money enters circulation without value even under a gold standard.

Exactly, both Hilferding and Kautsky were talking about a situation where an inconvertible paper currency circulated alongside metallic money. Kautsky was right to say that in this situation the "value of paper money" could only be explained with reference to metallic money and to say that this was Marx's position too. He was also right to challenge Hilferding's other view that the value of gold can't change (of course it can, and has, as for instance when geological conditions make it harder to mine or technological advances make it easier).

But their debate is about as relevant to today's situation as was their debate about bimetallism in the Austro-Hungarian Empire.Today we have a situation where inconvertible paper money is the only currency, ie where there is no metallic money circulating alongside it. Hilferding said this was impossible (as did Motylev) and neither Marx nor Kautsky discussed it. Well, it's not impossible. It's here now. In my view, it's explicable by an extension of Marx's analysis of what happens when too much of an inconvertible currency circulating alongside a metallic currency is issued: it depreciates, resulting in a rise in the general price level. In other words, yes, its "value" (purchasing power) depends on the amount issued in relation to the requirements of the economy for currency.

Motylev's point that when such "a system of pure paper money" was first introduced the government or central bank would try to fix its value with reference to previously-used value of gold (by only issuing enough to maintain the previous price level) has some validity but such a system has existed in most countries for over 70 years now. The purchasing power of the dollar or the pound today bears no relation to what it was when gold was last part of the currency.

Noa Rodman wrote:

I don't see the point, but if you want to know, a dollar is worth 1/1720 ounce of gold.

OK, I assume that's the dollar price of 1/1720 oz of gold today (or yesterday), but the point is what was the price last month or last year and what will it be next month or next year? This is important because if gold really were the currency and its value varied in this way on a monthly basis this should send prices haywire. This problem didn't arise when gold really was the currency (variations in the price of gold would simply result in more or less gold being brought to the Mint to be made into coins).

The price of gold has been continually increasing in recent years. This ought to mean that the general price level should be falling. Why isn't it? Obvious answer: because gold isn't actually the currency. But what's your explanation of why the price level hasn't been falling while the price of gold has been rising, as Kautsky would have expected to in this situation?

To elaborate on why I think the money-commodity is indispensable to Marx's analysis of money, here's a passage from Vol3:

Marx in Ch36 of Vol3 wrote:

But it should always be borne in mind that, in the first place, money — in the form of precious metal — remains the foundation from which the credit system, by its very nature, can never detach itself.

In my view, it is simply not true that the money-commodity can be just extinguished from the analysis and everything else left intact. So if we think that contemporary capitalism had altogether dispensed with the money-commodity forty or more years ago, we should at least attempt to think this through and look at the implications this has for Marx's analysis as whole. Has the credit system lost its foundation? What are the implications for crisis theory?

The price of gold has been continually increasing in recent years. This ought to mean that the general price level should be falling. Why isn't it? Obvious answer: because gold isn't actually the currency.

I don't think anyone would dispute the fact that gold (or any other commodity for that matter) does not serve as currency in any form. But currency is just one of several functions of money identified by Marx. It's still possible – in the sense that it cannot be ruled out by saying that gold is no longer the currency – for gold to serve as hoard, as universal money (this is still possible in principle, although countries rarely resort to use their gold reserves), as a means of payment of last resort (e. g. in a crisis, where the credit system is forcibly transformed into a monetary system), and as what some authors call the "denomination basis" co-determining the policies of central banks which in turn determine the purchasing power of national currencies.

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